🩻 Hardcore Finance: Lesson 3—Embracing Uncertainty and Mastering Risk Management

Unraveling the Paradox

Welcome back to Hardcore Finance, the series where we delve deep into the core principles that underpin the financial world.

If you're just joining us, you're in for an intense exploration of finance at its most fundamental and challenging levels.

Today, we tackle the intricacies of uncertainty, risk management, and valuation.

The Perplexing Case of Net Present Value Across Currencies

Let's kick things off with a thought-provoking question:

Can a project's net present value (NPV) be positive in one currency and negative in another?

At first glance, this might seem counterintuitive. After all, if we can convert cash flows from one currency to another using current exchange rates, shouldn't the sign of the NPV remain consistent?

The answer, however, delves into the complexities of international finance, exchange rates, and interest rate differentials.

Understanding the Core Concepts